An economic indicator sheds light on the trucking industry
LEILA FADEL, HOST:
There is an economic indicator that can reveal the state of the trucking industry and sometimes the economy at large. It's called the spot market rate, and it hit historic highs early in the pandemic. But this year, it's fallen fast. Paddy Hirsch and Wailin Wong from our daily economics podcast The Indicator explain what that means.
WAILIN WONG, BYLINE: If you need to truck your goods across the U.S., there are two ways you can do it. You can use the contract market, where you make a contract with a haulage firm. That's where the cost of transportation is agreed to weeks or months in advance. Or you can use the spot market.
KENDRA TUCKER: So at any given moment or any given location, there's a market for drivers and riders.
PADDY HIRSCH, BYLINE: This is Kendra Tucker. She's the CEO of truckstop.com It's a service that links people who need to move their goods with drivers who can do the moving for them.
TUCKER: One everyday example of a spot market is a ride-sharing app, like Uber or Lyft.
HIRSCH: The spot market in trucking is super dynamic, with prices rising and falling all the time, as supply and demand fluctuates. But during the pandemic, of course, we saw a massive surge in demand for goods, and that led to a surge in demand for truckers to ship those goods, and, of course, that led to a surge in transportation prices. Since 2020, the cost per mile to ship something in a truck has gone pretty much only one way - upwards.
WONG: Close to a 60% increase in the spot rates, an increase that peaked in January this year and created an interesting wrinkle in the trucking market.
HIRSCH: As those spot prices began to rise, contract market truckers started to get jealous of their spot market peers, and they started to reject their contracts.
TUCKER: So just because the contract exists doesn't mean the contract is always honored, particularly when spot market rates start doing what they've been doing. Carriers then say, I've got to get out of this contract because I could make more in the spot market.
HIRSCH: But of course, now the spot price is falling - down 15% since January. And in the past, a slump in the spot market has been kind of like a red light flashing on the dash of the trucking industry and maybe even the economy at large, warning that a correction could be coming or maybe even a recession.
TUCKER: We generally avoid the R word, in that it's not actually recessionary. I guess it's recessionary in that demand is receding. But demand was incredibly high, right? So what we're headed back to now is a normal market based on the trends that we see.
WONG: A normal market - and this makes sense, right? We are now coming out of the pandemic - fingers crossed.
HIRSCH: Fingers crossed.
WONG: And so our demand for services is rising, and our demand for goods is falling. That ebbing demand for goods means less demand for trucks.
HIRSCH: Which is good for the consumer, right? Because it means our stuff costs less to ship and, therefore, should be marginally less expensive.
WONG: But what about all those new trucking entrepreneurs who entered the market while it was raging hot?
DEMETRIS WASHINGTON: My name is Demetris Washington (ph). I'm the owner of Nomadic Transx LLC.
HIRSCH: Demetris started his own small trucking business in Maryland.
WASHINGTON: The industry right now is tough. You know, gas prices are really high and...
HIRSCH: But all of these problems aside, Demetris doesn't think that the sky is falling. Like Kendra Tucker, he believes that the industry is merely in a correction, and he's doing OK. Last week, he says, he broke even. That felt great.
WONG: Wailin Wong, NPR News. Transcript provided by NPR, Copyright NPR.